PRC applauds passage of priority consumer protections in new retirement law

PRC applauds passage of priority consumer protections in new retirement law


By Karen Friedman

The Pension Rights Center (PRC) applauds the recent inclusion of several key consumer provisions in the Setting Every Community up for Retirement Enhancement Act (better known as SECURE 2.0), a retirement legislative package that was passed as part of the Omnibus spending legislation, which President Biden signed into law on December 29th. 

Specifically, we support these provision that will protect and enhance retirement security for workers and retirees and their families:  

  1. The creation of a Retirement Savings Lost and Found. 

PRC and affiliated pension counseling projects across the country hear from hundreds of individuals every year who can’t find their pension plans because their companies have moved, changed names, or undergone a corporate restructuring. It often takes our legal staff multiple hours —and sometimes days, weeks, or months of detective work to locate each of these lost plans— and sometimes we simply cannot locate them no matter how hard we try. 

The new law helps solve this problem. Under SECURE 2.0, the Department of Labor will create and maintain an online searchable website that individuals can use to find their “lost plans” so they can apply for and receive the benefits they earned through their hard work. Plans will provide the Department of Labor with relevant information on how to locate the plan’s administrator whenever the plan undergoes a change,  

The establishment of the Retirement Lost and Found Registry has been a long-time PRC priority and will reunite individuals with their benefits, even years after they have stopped working for the employer that sponsored the plan.  

  1. New Protections for Participants in so-called “Recoupment” Actions. 

PRC has also heard from hundreds of individuals who face reductions in their pensions because of a practice called “recoupment” where plans accidentally overpay individuals, then demand repayment —often with interest— years later when they catch the mistake. We have seen cases where plans have required substantial repayments as high as six figures and sometimes have reduced future benefits to zero. Recoupments, large and small, often create great hardship to retirees who depend on the pension amount they were receiving. 

SECURE 2.0 clarifies that a plan is not required to recoup when it discovers an overpayment. And, if a plan chooses to proceed with recoupment, SECURE 2.0 adds important new participant protections, including a flat prohibition on recoupment if the plan does not discover its miscalculation within three years of the first overpayment. It also prohibits reducing future benefits by more than 10 percent.  

The recoupment provisions were the outgrowth of a multi-year common ground endeavor convened by the Pension Rights Center with attorneys representing retirees and those representing plan sponsors.  

  1. Delivery of individual benefit statement on paper and report to Congress on effectiveness of disclosures 

Federal law requires private retirement plans to disclose important information about their plans to workers and retirees so they can learn about the rules of their retirement plan, the benefits they have earned, and their rights and obligations under their plans. Individuals rely on individual benefit statements to keep track of their benefits and – sometimes assisted by PRC and counseling project attorneys – to help prove entitlement to benefits down the road.   

In 2020, the Department of Labor weakened ERISA disclosure protections when the agency issued a rule (called notice-and-access) allowing plans to satisfy their disclosure obligations by simply providing workers, retirees and spouses with an e-mail notifying them of the availability of a disclosure and directing them to a website where they can access disclosures. Participants could receive a paper copy of the disclosure only if they affirmatively requested that.  People’s busy lives and natural inertia can be counted on to result in many if not most people never actually receiving disclosures.   

To mitigate some of the damage of the DOL notice-and-access rule, SECURE 2.0 requires that plans at least provide participants with their legally required individual benefit statements on paper (unless the participant affirmatively elects electronic disclosure of such notice) once a year for 401(k)-style plans, and once every three years for traditional-style pensions. This improves the chances that people will actually see, read, understand, and retain this all-important statement, which describes the benefits people have earned.  

PRC views this SECURE 2.0 provision as an important step forward in protecting people’s rights to information and is promoting other ways of enhancing disclosure protections. In this regard, we were also pleased that legislation includes a separate provision requiring the relevant government agencies to review and report to Congress on, among other disclosure issues, “the rate at which participants and beneficiaries are receiving, accessing, understanding, and retaining disclosures.” The report is to include recommendations for improving these outcomes. 

  1. Enhanced Disclosure of Consequences of Electing a Lump Sum in So-Called “Derisking” Transactions.

In recent years, PRC has received an increasing number of inquiries from confused employees, wondering whether they should keep their lifetime annuity or trade it in for a lump sum payment that the plan is offering for a limited period. While the idea of receiving a large sum of money is tempting, it can have numerous ramifications. SECURE 2.0 includes provisions that require pension plan administrators to provide plan participants with critical information that would allow people to compare the relative benefits, explain how the lump sum was calculated – and how it could lead to a loss of certain federal protections. This information will be critical to helping people make more informed choices regarding their own – and their spouse’s – retirement future. 

  1. Helping Lower and Moderate-Income Workers Save for Retirement.

Secure also includes some provisions designed to help lower and moderate-income people save for retirement. It enhances the Saver’s tax credit by providing a direct government matching contribution for low- and moderate-income workers who contribute to an IRA or to a 401(k) and similar plans permitting employee contributions. 

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